Cape officials tout pension reform savings

Not all agree projections will be realized

August 1, 2013

In exchange for giving back roughly $50 million in pension reforms, city of Cape Coral workers are going to receive a one-time give back, spread out over two fiscal years.

But while some see it as a major victory for a city that has been choking on the weight of its own pension debt, other believe the numbers can't be trusted, as they assume variables that are too difficult to predict in today's stormy economy.

On Monday, the city council approved by a 6-2 vote the collective bargaining agreements of the city's general workers. The city workers gave back cost of living adjustments (COLA) for all current and future employees for three years, the maximum cap was reduced to $95,000, future employees had their years of service increased from 25 to 27 years on the job and from 60 to 62 years of age, and it now takes 10 years to become vested.

"A lot of this will impact current employees. The only one that won't is the increase in age and service," said city spokesperson Connie Barron.

"The actuaries have said all this will produce the $50 million in savings over 25 years."

In return, city employees in the pension system will receive a one-time, 5 percent bonus that will be spread out over two fiscal years. A 2.4 percent increase will occur in the next few weeks, with the other 2.6 percent coming on or around Oct. 10, just after the 2014 fiscal year kicks off, a kind of "thank you" to general employees who negotiated in good faith, officials said.

The general unions will get $1.4 million in bonuses, with roughly 100 non-contract workers in the general pension getting $400,000.

"This was all done to reduce pension costs for the city of Cape Coral. For a $1.8 million bonus check, they got $2 million in savings for the next 25 years, said Wally Ilczyszyn, who negotiated the contract for the workers.

There were some heated moments, despite all staff said about how peaceful negotiations were. However, in the end all four bargaining groups overwhelmingly approved the contract.

One of the things that worked in the city's favor, Ilczyszyn said, is that returns on pension funds increased greatly last year, with the upwardtrend continuing into this year.

"Our pension fund last year made 18.49 percent, which is in contrast to what dammed up a lot of the plans in 2008-09," Ilczyszyn said. "The first two quarters of this year are up 12 percent. We assume a rate of return at 7.75 percent, so we're doing real well."

Ilczyszyn added that pension plans take five years to smooth out the gains and losses.

But while some believe this savings, along with the $75 million the city saved bargaining with the police, goes a long way toward helping the city get out of pension purgatory, Mayor John Sullivan said the real hell is yet to come and the new contracts don't even begin to resolve that.

"We have a tremendous deficit in our pension system today. Our actuarial liabilities between OPEB and from the pension is around $420 million," Sullivan said. "To continue on with pensions for people making $95,000, when the average worker makes $35,000 a year, is too much. These aren't CEOs of a company."

A practice of workers being allowed to load up on overtime toward the end of their careers to balloon their pensions is something Sullivan believes is wrong, and that the base salary should determine pensions.

Besides, by retirement it shouldn't cost as much to live, Sullivan said.

"By the time people are ready to retire, most of their expenses are paid. The kids have left the house, the mortgage is paid. You don't need as much money," Sullivan said. "It doesn't make sense to have this kind of pension."

As for the $50 million figure, Sullivan said that number isn't solid, because it is based on averages and doesn't account for how the contracts are negotiated in the future nor changes in the economy or rates years from now.

"It depends on what happens in the future. That isn't savings at this point," Sullivan said. "It's a dynamic situation and not static. It's going to continuously change. We could have hyperinflation. I don't see how you could make that projection."

Sullivan voted against the contracts, but voted for the bonuses.

Councilmember Rana Erbrick disagreed with Sullivan's claims, saying the numbers are based on long-term averages, or smoothing curves.

"Over many years, you'll see that there's a pretty consistent return in investment. Assuming things stay the same or maybe a little worse, that is what we should be expecting," Erbrick said. "Some years that number will be higher or lower."

As for the bonuses, Erbrick said they were a "thank you" for being good workers and for negotiating in good faith.

However, she warned that future contracts will also have to front-load bargain with city employees to hack away at the pension problem.

"We made good strides with the FOP and city employees. If you're going to hit heavy on the pension side of it, you're going to have to front-load wages," Erbrick said. "You have to allow the employee the opportunity to invest their dollars however they want."